The US dollar is weak right now due to a lack of new developments keeping Federal Reserve interest rate expectations low. Last week, the dollar dropped after the US CPI data met expectations, and initial jobless claims unexpectedly went up. This rise in jobless claims was linked to fraudulent claims in Texas, which shows that the labor market remains strong. The US dollar has mostly fluctuated within a set range, and it seems the low rate expectations might have peaked. If the Fed cuts rates, it could boost the economy and change future rate expectations, benefiting the dollar. However, unless strong economic data comes in, the current trend favors a weaker dollar.

Swiss Franc Performance

The Swiss National Bank has stopped its easing cycle, and inflation is below the 2% target. The performance of the Swiss franc depends on movements in other currencies, as the SNB is unlikely to introduce negative rates. In technical analysis, USDCHF has dropped to around the 0.79 level, where buyers might step in to push it up to 0.80. On the 4-hour chart, sellers are in control following recent US reports. The 1-hour chart shows a minor downward trendline, suggesting continued bearish momentum, but changes could occur based on price movements. Upcoming data includes US Retail Sales, the FOMC policy announcement, and US Jobless Claims. The US dollar is weak leading up to the Federal Reserve’s meeting tomorrow; today’s August retail sales report, which only showed a +0.2% increase, supports this view. The market now expects over an 85% chance that the Fed will hold rates steady but may signal cuts before the year ends. This cautious sentiment puts pressure on the dollar.

Options and Trading Strategies

We think the bearish viewpoint on the dollar may be too much, creating a chance for a sharp reversal. Last week’s spike in jobless claims was linked to fraud, and the underlying 4-week average of claims remains steady near a low of 225,000, indicating that the labor market is not collapsing. If the Fed shows any uncertainty about future cuts tomorrow, the dollar could make a strong comeback. Meanwhile, the Swiss franc lacks domestic drivers. Switzerland’s latest inflation for August was 1.5%, within the Swiss National Bank’s target, keeping them neutral. This situation makes the USDCHF pair largely dependent on the Fed’s decision and market reaction. For derivative traders, USDCHF is at a key support level near 0.7900. One option is to buy short-dated call options with a strike price near 0.8000 in anticipation of a possible bounce if the Fed is less dovish than expected. The defined risk of options makes them appealing due to uncertainty around tomorrow’s announcement. On the flip side, if the Fed confirms the market’s dovish view, breaking below the 0.7900 support could lead to more selling. In this case, buying put options would be a direct way to bet on a drop to new lows we haven’t seen since early 2024. Given the higher implied volatility ahead of the event, using option spreads could be a more cost-effective strategy. Create your live VT Markets account and start trading now.

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